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Source: CyberAtlas

Posted on November 9, 2001

      Flying in the face of research that has predicted a prosperous holiday season for online retailers, a study by Odyssey has found online consumers becoming wary of e-commerce.

      Odyssey's "Breadbox Study", which tracks consumer attitudes and behaviors with regard to commerce, found that online purchasers are significantly less likely to purchase online again in the second half of 2001. The semiannual study consists of national random-sample surveys of 3,000 consumers that are representative of all U.S. consumers 16 years of age and older.

      Among consumers who bought personal items online in the first half of 2001, the proportion reporting that they are very likely to purchase online again in the third and fourth quarters has dropped from 71 percent one year ago to 54 percent. The study also found that among consumers who have ever purchased online, the proportion who have purchased in the last six months has declined steadily from 95 percent to 82 percent over the last 18 months.

      The findings can be especially disturbing to online retailers who have been struggling to attain profitability because it is cheaper for retailers to deal with existing customers and online shoppers than to acquire new ones. If the results of the study are prophetic, online retailers may have to pay to convert new online shoppers this holiday season, and those shoppers tend to spend less than online shopping veterans.

      Adding to the worries of retailers, both online and offline, is the economic downturn. According to Odyssey's study, 51 percent of consumers report they are more likely to pursue bargains given the current economic environment, and 46 percent report that products on sale are the only products they are likely to buy. As of July, 85 percent of consumers planned to spend as much or more this holiday season as they did in 2000.

      "Online retailers are going to face some very tough sledding this holiday season. Certainly some of those who have established brand names and exercise extraordinary discipline in targeting customers will come through fine, but the data provides ample reason to believe that many online retailers who expect this holiday season to be their salvation will find it instead to be their demise," said Nick Donatiello, president and CEO of Odyssey. "The challenge of balancing volume with per sale profitability will be greater this year than it has ever been before for these young retailers."

      The study also examined the question of online savings. Sixty-five percent of online purchasers said they feel that shopping online saves them money and 55 percent of all U.S. consumers believe that people using PCs and online services for shopping are likely to be enjoying retail savings through the online channel.

      "Consumers, both on- and offline, have existing perceptions of online retail as a way to save money and online retailers need to fuel these perceptions through marketing and communications efforts," said Sean Baenen, managing director at Odyssey. "Attracting consumers with low prices and following through with iron-clad execution this holiday season can help some online retailers survive in the short-term, and, more importantly, will position these sites well when the economy regains momentum."

      But are consumers looking for savings when they shop online? It's a subject that's been debated by researchers covering the retail sector from day one. According to research from GartnerG2, the key to success this holiday season is customer satisfaction. Given the high-profile customer service failures of holidays past, Gartner's research told retailers to focus on providing convenience to consumers.

      The GartnerG2 survey found that 81 percent of online consumers value convenience when making a purchase online, compared with 33 percent who value price savings. In fact, an examination of the motivating factors among online buyers by GartnerG2 found convenience-related issues dominate; only 33 percent of the respondents feel that getting better prices is an important driver to buying on the Internet.

      The discussion of what motivates online shoppers is moot if they aren't going to spend. But the mood of online consumers seems to be improving as the holidays approach. According to research from comScore, total domestic e-commerce sales totaled approximately $974 million during the week ending Oct. 28, a level only 2 percent below the average week observed during a benchmark period calculated over the five months preceding September 2001. Even travel services, the sector hardest hit in the aftermath of the Sept. 11 attack, has begun to bounce back.

      Meanwhile, the initial findings of the eSpending Report by Goldman Sachs, Harris Interactive and Nielsen//NetRatings, which is based upon a weekly national survey of 500 online shoppers, found that 69 percent of Internet users have not begun shopping for the holidays. Respondents who have started their holiday shopping report they choosing their e-commerce destinations based on prior experience and a traditional retail store presence. Twenty-eight percent of those surveyed shopped at a site they found through a portal or search engine. Only five percent said that the Sept. 11 attack would force them to increase their online shopping.

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